RBA holds cash rate at 3.60% as inflation eases, risks remain

The inflation in Australia eased substantially from its 2022 peak, with both headline and trimmed mean inflation falling within the RBA’s 2–3 per cent target range in the June quarter. The higher interest rates have been effective in bringing aggregate demand and potential supply closer towards balance. However, recent partial and volatile data suggest that inflation for the September quarter may be higher than anticipated in the August Statement on Monetary Policy, RBA said in a press release.

Private demand has emerged as a stronger driver of growth, recovering more rapidly than expected. The RBA noted that private consumption is picking up as real household incomes improve and financial conditions ease, offsetting a slowdown in public demand.

Labour market conditions remain steady, with the unemployment rate unchanged at 4.2 per cent in August, though employment growth has slowed slightly more than anticipated. Measures of labour underutilisation remain low, and surveys indicate little change in labour availability.

While wages growth has eased from its peak, productivity remains weak, keeping unit labour costs high. The central bank flagged significant uncertainties in the domestic outlook, including the potential for stronger household spending to sustain demand pressures, as well as the risk that consumption growth could falter if overseas developments dampen confidence.

Globally, elevated uncertainty persists despite greater clarity on US tariff policy and other nations’ responses. Broader geopolitical risks continue to weigh on the outlook for global growth and trade.

Given signs of a modest recovery in private demand, potential persistence of inflation, and stable labour market conditions, the RBA Board decided to maintain the cash rate at its current level. It stressed that financial conditions have eased since the start of the year, though the full impact of earlier rate adjustments will take time to emerge, added the release.

The Board emphasised on a cautious approach.

ALCHEMPro News Desk (SG)